If you've ever watched those TV commercials about the joys of growing old - like the
one where seniors barrel down the road in a convertible while guzzling a nutritional
supplement - you may have wondered whether there are any downsides to aging.
If so, you could - as I did - hit the Internet site of Americans for Long-Term Care
Security (www.ltcweb.org). There you can click on your age, gender, and home state and
learn the costs of the long-term care (LTC) you can expect over the remainder of your life
to help you perform the daily tasks of living as you age, plus the odds that you'll
require a nursing home stay. The figures for me (a 41-year-old male Pennsylvanian) came to
nearly $170,000 with a 30 percent chance of institutionalization.
Granted, this site is backed by the insurance industry, with an interest in scaring you
silly. But the facts are that two in five Americans will require nursing home care at some
point, more than half of them for at least a year - and a year in a nursing home now
averages $50,000. And that means that if you're thinking about the future tab for
yourself, your spouse, and two parents or in-laws, you're looking at a bill far in excess
of the average house purchase in this country.
Of course, if you are thinking about this at all, you're in the distinct minority.
Estimates are that 9 percent of the potential customers have actually bought LTC
insurance. Surveys show that four out of ten Americans believe that Medicare will cover
such expenses.
Unfortunately, it won't. Instead, Medicaid, the government health care program intended
for the poor, has been stuck with the biggest tab for LTC, even though most beneficiaries
aren't poor. Medicaid already spends nearly 40 percent of its budget to finance long-term
care for the elderly, paying for two-thirds of all nursing home residents in the country.
As these numbers grow, Medicaid could supplant Social Security and Medicare as the largest
item in the federal budget. And grow they will: Over the next 40 years, the number of
Americans in nursing homes will more than double. If Social Security and Medicare are
taking on water, LTC costs threaten to become a governmental Titanic.
How did Medicaid, originally designed to provide medical care for poor families with
children, become a back-door entitlement to long-term health care for middle class
families? Because Congress keeps raising Medicaid's threshold of "poorness,"
enabling many middle class Americans to sneak under the eligibility wire by transferring
assets to relatives before they die. Nowadays, you have to be really rich and have a
really bad lawyer not to be able to induce the public to pay for the LTC costs you didn't
think to plan for yourself.
It's hard to imagine a less efficient or equitable way to deal with Americans' growing
demand for long-term health care. The alternative to Medicaid's backdoor entitlement is
private insurance - but who wants to buy a costly long-term health insurance policy if
they think Medicaid will pick up their costs for free?
There's a three-part answer to this dilemma. First, we must close the loopholes in
Medicaid, making it difficult if not impossible for relatively well-to-do families to game
a system meant for the poor and instead encourage all Americans, rich and poor alike, to
care for themselves to the extent they can. Second, government can rectify market failures
by investing in "public goods," promoting greater availability of information,
and stimulating demand for LTC insurance. Third, we must empower people to care for
themselves by ensuring a more competitive market for long- term health care, making it
easier for people to buy insurance and to pool their purchasing power to get better deals,
and provide help to those who can't in a way that enhances value for all. This would be
part of an approach to government's role that I call competition.gov.
Competition.gov says government will work better, and its programs will be better
accepted, when people can voluntarily choose how much government they "buy." But
under competition.gov, not only will market competition encourage better government,
government will also encourage better market competition: The more government polices the
market by competing with it, the less it needs to do so by regulating it. Can government
actually compete with the private sector? In many instances, it already does: Compare the
price of express mail from the Post Office with that of private overnight services - or
try to find an investment manager who will handle your money for the 2 percent
administrative overhead of the Social Security Administration.
Health insurance, like long-term care, offers another opportunity. Government can also
make businesses compete harder by aggregating consumer power: The buying clout of the
Federal Employees Health Benefits Plan (FEHBP) already drives better insurance deals for
thousands of government employees - and could for others, as well.
Here are the steps we should take to create a comprehensive, public-private system of
long-term health insurance for all Americans:
- Ask not what your country can do for you until you've first done what you can for
yourself. All Americans must either buy long-term care insurance, or be prepared to spend
down their assets before the public steps in to pay any of their bills.
- Real choice entails real responsibilities. In long-term care, this means ending the de
facto entitlement program for people who don't need government aid, didn't provide for
themselves but simply have good lawyers. Telling people the government will care for them
anyway, even if they shirk their self-responsibility and game the system, cheats those who
take care of themselves. Thus, people who do not buy insurance will have to pay their LTC
bills out of their own pockets until they have completely spent down their assets. Gaming
the system would be discouraged through recovery of any public LTC expenditures - plus a
penalty - from the beneficiary's estate and aggressive efforts to combat asset transfers
to other family members.
- The government should work to lower long-term care costs, generally, by funding medical
research and by restructuring its own health care programs to encourage long-term
investments in prevention.
- Meanwhile, government can help empower everyone to take responsibility for insuring
themselves through public education on long-term health care costs and risks, and better
access to information, including consumer report cards on the quality of various LTC
options, public and private.
- To facilitate that, and ensure that low-income workers have coverage as a
"default," workers should be allowed to pay LTC insurance premiums through the
payroll deduction system.
- And government ought to offer a competitively priced LTC policy of its own to spur
competition and thus lower prices. The costs of insurance are currently too high in part
because, in a sort of Catch-22, not enough people buy it to form an adequate pool, driving
up the cost per head. Policies providing unlimited protection against high-end exposure
are particularly hard to come by. The government could break this cycle by offering
actuarially sound insurance policies priced to an expanded, mature market. By widening
choices and spurring competition, government can help "bootstrap" the market to
a higher level of output and efficiency.
- This government insurance would also ensure that the market stays competitive, massing
buying power and market clout to drive better bargains for consumers - as with FEHBP - and
economies-of-scale to offer consumers competitive options that would require private
insurers to keep pace or lose business. Anyone could opt for the government insurance deal
- but, unlike under a mandatory government program like Social Security or Medicare,
they'd be free not to.
- Tax policy can provide incentive and assistance to middle class Americans to meet their
own needs, while encouraging insurers to generate proper products. Washington should use
tax credits to help people buy insurance rather than to help them defray out-of-pocket LTC
costs, as the Clinton Administration has proposed. In addition, such credits should only
be available for purchase of policies meeting minimum coverage standards, especially
provision of unlimited, uncapped coverage to reduce those left exposed to the risk of
impoverishment and the consequent need for Medicaid's help. In this way, government would
use the market's "invisible hand" instead of the heavy hand of regulation, to
spur socially responsible private behavior by both individuals and industry.
- Finally, the government would provide subsidies to those who need them. Lower-income
families would be able to buy the government insurance for an income-adjusted reduced
rate, which would be facilitated by use of the existing payroll system - but they could
receive a card or voucher allowing them to use the equivalent of their government
"subsidy" to purchase private insurance coverage instead.
Medicaid, in short, would be refocused primarily on providing the poor with insurance
coverage beforehand rather than inefficient care later, in a way that makes
self-responsibility realistically affordable. This change would make Medicaid consistent
with the middle class tax incentives proposed to shift emphasis from subsidizing care
costs to subsidizing insurance purchase. Isn't this kind of subsidy program still just
another form of welfare? No, because it's intended to foster a private market in long-term
health insurance - and in ways that create benefits for all, not just the needy - rather
than simply transferring wealth from one set of pockets to another. Bringing together more
purchasing power helps everyone; this is compounded in insurance, where the "law of
large numbers" basically makes costs per person lower the more people are in the
pool. Even if we have to partially subsidize some, everybody benefits.
In competition.gov, everyone will choose their own level of government reliance -
always with the option of private alternatives if they think they can do better. Everyone
will assume primary responsibility for themselves - with society helping to the extent
they actually need it, and even then with market empowerment not entitlements. And the
government will aggregate public purchasing power and use its economies of scale to
"keep the marketplace honest," while also investing in the public goods and
public functions that only government can provide, to help reduce costs and thereby make
care more affordable for all.
